Question

Colerain Corporation is a merchandising company that is preparing a budget for the third quarter of the calendar year. The company’s balance sheet as of June 30 is shown below:

COLERAIN CORPORATION Balance Sheet June 30
Assets
Cash	$   88,000
Accounts receivable	134,000
Inventory	60,000
Plant and equipment, net of depreciation	280,000
Total assets	$ 562,000
Liabilities and Shareholders’ Equity
Accounts payable	$   69,000
Common shares	380,000
Retained earnings	113,000
Total liabilities and shareholders’ equity	$ 562,000

Colerain’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $240,000, $260,000, $250,000, and $270,000, respectively.
2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 30% in the month of sale and 70% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.
3. Each month’s ending inventory must equal 30% of the cost of next month’s sales. The cost of goods sold is 65% of sales. The company pays for 50% of its merchandise purchases in the month of the purchase and the remaining 50% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.
4. Monthly selling and administrative expenses are always $73,000. Each month, $8,000 of this total amount is depreciation expense and the remaining $65,000 relates to expenses that are paid in the month they are incurred.
5. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common shares or repurchase its own shares during the quarter ended September 30.

Required:
1. Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30.

2a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

2b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30th.

  

3. Prepare an income statement for the quarter ended September 30. (Do not leave any empty spaces; input a 0 wherever it is required.)

4. Prepare a balance sheet as of September 30.

Answer 1

Solution 1
Schedule of expected cash collection - COLERAIN CORPORATION
Particulars	July	August	September	Total
Accounts Receivables from June	$134,000.00			$134,000.00
Cash received for July Sale	$72,000.00	$168,000.00		$240,000.00
Cash received for August Sale		$78,000.00	$182,000.00	$260,000.00
Cash received for September Sale			$75,000.00	$75,000.00
Budgeted Cash Collection	$206,000.00	$246,000.00	$257,000.00	$709,000.00
Solution 2a:
Material Purchase Budget - COLERAIN CORPORATION
Particulars	July	August	September	Total
Budgeted Cost of goods sold	$156,000.00	$169,000.00	$162,500.00	$487,500.00
Add: Desired ending merchandise inventory	$50,700.00	$48,750.00	$52,650.00	$52,650.00
Total Needs	$206,700.00	$217,750.00	$215,150.00	$540,150.00
Less: Opening Inventory	$60,000.00	$50,700.00	$48,750.00	$60,000.00
Required purchases	$146,700.00	$167,050.00	$166,400.00	$480,150.00
Solution 2b:
Schedule of expected cash disbursement for merchandise purchases - COLERAIN CORPORATION
Particulars	July	August	September	Total
Payables from June	$69,000.00			$69,000.00
July Purchases	$73,350.00	$73,350.00		$146,700.00
August Purchases		$83,525.00	$83,525.00	$167,050.00
September Purchases			$83,200.00	$83,200.00
Total payments in month	$142,350.00	$156,875.00	$166,725.00	$465,950.00

Solution 3:
Income Statement - COLERAIN CORPORATION
For Quarter Ended - September 30
Particulars	Amount
Sales	$750,000.00
Cost of Sales	$487,500.00
Gross Profit	$262,500.00
Selling and adminstrative expenses	$219,000.00
Net operating income	$43,500.00
Interest expense	$0.00
Net Income	$43,500.00
Solution 4:
Balance Sheet- COLERAIN CORPORATION
30-Sep
Particulars	Amount
Assets:
Cash ($88,000 + $709,000 - $465,950 - $195,000)	$136,050.00
Accounts receivables ($250,000*70%)	$175,000.00
Inventory	$52,650.00
Plant and equipment net of depreciation ($280,000 - $24,000)	$256,000.00
Total Assets	$619,700.00
Liabilities and stockholder's Equity:
Accounts payable ($166,400*50%)	$83,200.00
Common Stock	$380,000.00
Retained Earnings ($113,000 + $43,500)	$156,500.00
Total liabilities and stockholders equity	$619,700.00